MATCHING STRATEGY TO INDUSTRY AND COMPANY 7 SITUATIONS

MATCHING STRATEGY TO INDUSTRY AND COMPANY

7

SITUATIONS

Before making a strategic choice managers of a company should tailor strategies to the unique situations prevailing in the industry and the company itself. Such tailoring or matching would help managers customize the company's strategy. Matching strategy to industry-specific situations and company-specific situations also provides insights about strategic choice ? which strategy options are well suited (or better suited) to certain industry conditions and which are better suited to company situations. Managers finally custom-tailor the chosen strategic approach to fit the industry situations and company's capabilities. In this unit we examine the issue of strategy-matching to industry situations first and then we explore how strategy can be matched to company situations.

School of Business

Blank Page

Unit-7

Page-128

Bangladesh Open University

Lesson-1: Matching Strategy to Industry Situations-I: Emerging and Maturing Industries

Learning Objectives:

After studying this lesson, you should be able to: Understand the types of industry environment. Define emerging industry and develop appropriate strategies for competing in an emerging industry. Explain the concept of maturing industry and determine what types of strategies would be suitable for operating business successfully in the maturing industry.

Industry Situations: An Introduction

The best strategy always wins. A firm does the same thing in the marketplace as what the army do in the battle-field. The marketplace is similar to the war-field for a business organization. Doing business in a competitive market is just like a war in the battlefield. If the army commander fails to formulate and implement war-strategy most suitable to the particular situations in the battlefield, the army is doomed to defeat. Similarly, if the managers of a company are unable to develop strategy appropriate to market situations, they will survive simply to lament for their failures. That is why, after identification of generic strategies, managers need to develop suitable strategies reflecting the company's particular circumstances. In the previous two units we have examined strategies commonly undertaken by various firms. This unit examines the issue of matching strategies in different industry situations/industry environment. Simply speaking, this unit will provide the readers with insights about customization of a company's strategy on the basis of prevailing conditions in the industry. The discussion in this unit will equip the readers to answer the following two questions:

? What basic type of industry environment does the company operate in?

? What strategic options are usually best suited to this generic type of environment?

Types of Industry Situations

Every company operates its business in an industry. An industry consists of all units producing similar products and competing for the same buyers. Industry has been defined by Thompson and Strickland as "a group of firms whose products have so many of the same attributes that they compete for the same buyers."

An industry may be viewed, based on its nature, as:

1. Emerging Industry 2. Maturing Industry 3. Declining/Stagnant Industry 4. Fragmented Industry

Strategic Management

Page-129

An emerging industry is an industry which is at its early stage of development.

School of Business

These are the industry situations. From the very name it appears that industry situations widely differ. Every situation has its own unique character. We now examine each of them to appreciate each of their implications for strategy-making.

Emerging Industry and Strategies: Introduction

It is very challenging to operate business firms in an emerging industry. Before we proceed toward identifying the strategic challenges in an emerging industry, let us define it. And, then we would explore the strategy-making challenges in the emerging industry, to be followed by identification of possible strategies to pursue in emerging industry for success.

Emerging Industry Defined

An emerging industry is an industry which is at its early stage of development. In fact, it is an `infant industry.' An emerging industry is characterized by a few number of competitors, high growth potential, uncertainty of demand, dominance of proprietary technology, wide differences in product quality, low entry barriers, difficulty in having ample supply of raw materials, and so on. In Bangladesh, examples of emerging industry include software, broadband Internet, electronic banking, distance education, CD-based book publications, flower farming, fruits processing, and `spirulina' (a herbal medicinal food product invented by BCSIR).

Strategy-Making Challenges in Emerging Industry

Michael Porter has pointed out several strategy-making challenges that manager's face while competing in emerging industries. These are as follows:

1. Doubts exist about the functioning, growth and size of the market. Managers cannot make useful projections of sales and profits due lack of historical data. Thus, they mostly depend on guesswork.

2. Proprietary technology dominates the industry. The owners of the technology usually do not allow others to use it. Success mostly depends on patents and unique technical expertise.

3. Uncertainty prevails regarding the product attributes that may win customer acceptance. Uniformity is difficult to find in product quality and product performance. Therefore, competition in the industry centers around each company's strategic approach to technology, product design and marketing.

4. Entry into the emerging industry is relatively easy. As a result, resourceful and opportunity-seeking companies may enter into the industry if there is a high growth prospect.

5. In an emerging industry all buyers are first-time users of products. Therefore, the marketing managers must try to induce initial purchase.

Unit-7

Page-130

Bangladesh Open University

6. In an emerging industry the products are first-generation products (absolutely new). Thus, many potential customers defer their purchase until the quality improves.

7. Because of its immature stage, the emerging industry most often fails to attract the suppliers of raw materials to gear up their production. This creates hurdles in getting regular and adequate supply of raw materials.

Possible Strategies to Pursue in Emerging Industries

Several strategic options are available to the entrepreneurs in the emerging industry:

1. Low-cost strategy is viable to discourage potential competitors to enter into the industry. Even company can use price-cuts to attract the price-sensitive buyers.

2. Differentiation strategies may be adopted based on technological or product superiority.

3. A company may adopt cooperative strategy (strategic alliance) through forming partnership with key suppliers of materials and components.

4. A company may form strategic alliance with other companies having technological expertise to outcompete strong competitors.

5. Acquisition strategy may be followed to acquire special skills or capabilities so that the company can weaken the competitors based on technological superiority.

6. A company may enter into a joint venture agreement (if there are financial constraints) to cover greater geographical areas or pursue new customer groups.

Maturing Industry and Strategies: Introduction

Managers should be able to understand the meaning and nature of a maturing industry. A knowledge about the maturing industry would help them identify the fundamental changes that have occurred in the market environment that would, in turn, facilitate them to adopt appropriate strategic options in such an industry. Keeping this background in view, following issues concerning a maturing industry would be covered in this section:

? Meaning and nature of maturing industry

? Market maturity and fundamental changes in the maturing industry's competitive environment

? Strategic options in a maturing industry

Meaning and Nature of Maturing Industry

As an industry grows rapidly, it reaches a point where further growth slackens significantly. The growth in the industry is halted due to saturation in the market demand. When an industry is in such a situation,

Strategic Management

Page-131

 ................
................

In order to avoid copyright disputes, this page is only a partial summary.

Google Online Preview   Download